I thought this would be a good opportunity to share some of my tips and thoughts on how to best negotiate a sublease and to highlight several areas to be careful with.
- Can be an opportunity to secure below market lease rates.
- The space is often furnished and wired for data and telecom.
- New business or new to a market? A sublease can be a great way to test the waters.
- Expecting growth and don't want to commit to too much space?
- Mater Landlord - The Landlord on the original lease or "Master Lease".
- Sublandlord - The Tenant that is looking to sublease out their office or industrial space.
- Subtenant - The Tenant who is assumes the lease obligations of the Sublandlord.
- Master Lease - The original lease - all terms and conditions of the sublease will be passed along to the Subtenant.
- Sublease Agreement - Outlines the agreement between the Sublandlord and Subtenant.
- Can be an opportunity to secure lower cost space initially and simultaniously strike a direct lease for a longer term after the sublease expiration.
- The Landlord may consider a lease buyout with the existing Tenant and will strike a new direct lease with you. This typically occurs if the new tenant is stronger financially and more "credit worthy".
Common Pitfalls to Watch Out For
- Review the Master Lease carefully, the Subtenant is assumes all liability of that Lease.
- What is the extent of your required Tenant Improvements? Carefully balance that with the remaining sublease term.
- Options to Extend typically are not granted to Subtenant
- Who maintains ownership of and is responsible for the removal of any office furniture
- What is the age and condition of mechanical equipment servicing the space that the Tenant may be responsible for?
- Who is responsible for restoration of space to the original condition at the end of the lease term. Review the Master Lease carefully.
Obviously this is a very general overview of several of the terms and strategies of a commercial sublease. Please contact Sherpa Commercial real Estate with specific questions or consult you own legal or real estate adviser.
Caveat - I am not an attorney and this is not to be construed as Legal Advise. Always seek legal advice for your individual situation and transaction.